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Answer Key
1. True
2. True
3. True
4. True
5. True
6. True
7. True
8. True
9. True
10. True
11. True
12. False
13. False
14. True
15. True
16. True
17. True
18. False
19. True
20. True
21. True
22. True
23. True
24. False
25. False
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26. True
27. False
28. False
29. True
30. True
31. True
32. True
33. False
34. True
35. True
36. False
37. True
38. True
39. False
40. False
41. True
42. True
43. False
44. True
45. False
46. True
47. True
48. False
49. True
50. a
51. c
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52. c
53. b
54. a
55. d
56. b
57. c
58. b
59. c
60. a
61. c
62. a
63. c
64. d
65. b
66. d
67. a
68. a
69. d
70. b
71. c
72. d
73. d
74. a
76. b
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77. c
78. d
79. c
80. c
81. c
82. a
83. d
84. a
85. d
86. c
87. a
88. d
89. a
90. d
91. b
92. b
93. d
94. a
95. b
96. d
97. a
98. d
99. b
100. b
101. c
102. c
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103. c
104. a
105. c
106. a
107. c
108. c
109. b
110. c
111. d
112. a
113. a
114. d
115. b
116. d
117. a
118. b
119. b
120. a
121. b
122. b
123. d
124. b
125. d
127. d
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information systems are characteristic of simple structures. A simple structure is appropriate for firms offering a single
product line in a single geographic market. It is well-matched with focus strategies and business-level strategies. As firms
grow larger and more complex, the functional structure is adopted. A professional CEO with a limited corporate staff and
functional line managers are required. This allows for specialization of organizational functions such as accounting,
production, and human resources. Coordination and communication systems are more complex in the functional structure
than in the simple structure. As firms diversify in products and/or geographic areas, they evolve to the multidivisional
structure and one of its related forms (cooperative, competitive, SBU). The cooperative multidivisional structure, used to
implement the related constrained corporate-level strategy, has a centralized corporate office and extensive integrating
mechanisms. Divisional incentives are linked to overall corporate performance. The related linked SBU multidivisional
structure establishes separate profit centers within the diversified firm. Each profit center may have divisions offering
similar products, but the centers are unrelated to each other. The competitive multidivisional structure used to implement
the unrelated diversification strategy is highly decentralized and makes little use of integrating mechanisms. It employs
objective financial criteria to evaluate each unit’s performance. All units compete for corporate resources.
134. Business-level strategies are usually implemented through the functional structure. The cost leadership strategy
requires a centralized functional structure, one in which manufacturing efficiency and process improvements are
emphasized. Jobs are specialized, and rules and procedures are formal. The differentiation strategy’s functional structure
focuses on marketing and research and development. Decision making and authority are decentralized. Jobs are not highly
specialized and procedures are informal. These characteristics allow employees to exchange ideas and to be more creative.
The organizational structure supporting the integrated cost leadership/differentiation strategy must be simultaneously
centralized and decentralized. Jobs are semi-specialized and procedures call for some formal and some informal job
behavior.
135. A multi-domestic strategy is implemented with a worldwide geographic area structure. This structure uses no
integrating mechanisms, and it emphasizes decentralization, low formalization, and informal coordination among units.
This facilitates the strategic objective of responding to local market differences. The worldwide product divisional
structure is used to implement a global strategy. Because the type of firm that uses this structure offers standardized
products across the globe, this organizational structure emphasizes centralization to achieve economies of scale and scope.
Decision making is centralized. Integrating mechanisms, such as liaison roles and teams, are important. The transnational
strategy is implemented with a combination structure. Because it must be simultaneously centralized and decentralized,
integrated and nonintegrated, formalized and nonformalized, the combination structure is difficult to organize. There is a
strong emphasis on cultural diversity. There are two combination structures, the global matrix structure and the hybrid
global design. The matrix structure involves multiple reporting relationships and promotes flexibility and responsiveness
to customer needs. The hybrid global design combines some divisions which are product oriented and some which are
oriented to particular geographic markets.
136. Strategic and financial controls are both types of organizational controls that guide the use of strategy, indicate how
to compare actual results with expected results, and suggest corrective actions if there is an unacceptable difference.
Strategic controls are largely subjective criteria intended to verify that the firm is using appropriate strategies for the
conditions in the external environment and the company’s competitive advantages. Strategic controls are concerned with
the fit between what the firm might do (opportunities) and what it can do (competitive advantages). Financial controls are
largely objective criteria used to measure the firm’s performance against previously established quantitative standards.
Accounting-based measures, such as return on investment and return on assets, and market-based measures, such as
economic value added, are examples of financial controls.
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local market responsiveness.
a.
True
b.
False
3. Organizational controls guide the use of strategy, indicate how to compare actual results with expected results, and
suggest corrective actions to take when the difference is unacceptable.
a.
True
b.
False
4. The selection of an organizational structure for an internationally diversified firm should consider the international
corporate-level strategy the firm is using.
a.
True
b.
False
5. The cooperative form is an M-form structure in which horizontal integration is used to bring about interdivisional
cooperation.
a.
True
b.
False
6. Strategic controls are largely subjective criteria intended to verify that the firm is using appropriate strategies for the
conditions in the external environment and the company’s competitive advantages.
a.
True
b.
False
7. As a firm grows, it typically shifts from a simple structure to a functional structure.
a.
True
b.
False
8. There are three variations of the multidivisional structure.
a.
True
b.
False
9. Failure to properly structure an organization can contribute to poor strategic decisions and eventually bankruptcy.
a.
True
b.
False
10. The worldwide product divisional structure has centralized decision-making authority in the worldwide division
headquarters to coordinate and integrate decisions and actions among business units.
a.
True
b.
False
11. To implement a related constrained strategy, firms should use the cooperative form of the multidivisional structure.
a.
True
b.
False
12. Organizational inertia often prompts top management to initiate structural change when organizational performance
levels drop.
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a.
True
b.
False
13. Research shows that structure has a more important influence on strategy than the reverse and hence the emphasis of
the chapter on the subject of structure.
a.
True
b.
False
14. To implement a related linked strategy, a firm usually needs an SBU structure.
a.
True
b.
False
15. The matrix organization has a dual structure combining functional specialization and business product or project
specialization.
a.
True
b.
False
16. The divisions within each SBU are related in terms of shared products or markets, but the divisions of one SBU have
little in common with the divisions of the other SBUs.
a.
True
b.
False
17. Internal competition for corporate resources is effective for companies with an unrelated diversification strategy, but
dysfunctional for companies with a related constrained strategy.
a.
True
b.
False
18. Companies and business units using the differentiation strategy should emphasize financial rather than strategic
controls.
a.
True
b.
False
19. According to Michael Dell, an overemphasis on financial controls to produce attractive short-term results contributed
to performance difficulties at Dell, Inc. This point emphasizes the importance of properly balancing the use of strategic
and financial controls.
a.
True
b.
False
20. The worldwide geographic area structure differs from the worldwide product divisional structure in the level of
centralization of decision making.
a.
True
b.
False
21. A simple structure is an organizational form in which the owner-manager makes all major decisions directly and
monitors all activities, while the staff merely serves as an extension of the manager’s supervisory authority.
a.
True
b.
False
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22. High levels of formalization of rules and procedures which often emanate from the centralized staff are a characteristic
of the structure used to implement the cost leadership strategy.
a.
True
b.
False
23. The simple structure is used by owner-managed firms which are characterized by informal relationships, few rules,
limited task specialization, and unsophisticated information systems.
a.
True
b.
False
24. With a related diversification corporate-level strategy, financial controls are used by corporate leaders to verify the
sharing of appropriate strategic factors such as knowledge, markets, and technologies across businesses.
a.
True
b.
False
25. For firms in a vertical complementary alliance (such as between Toyota and its suppliers), it is more difficult to
identify the strategic center firm than in a horizontal complementary alliance (for example, airline alliances).
a.
True
b.
False
26. Firms implementing the multidomestic strategy often attempt to isolate themselves from global competitive forces by
establishing protected market positions or by competing in industry segments that are most affected by differences among
local countries.
a.
True
b.
False
27. Alliances of organizations in the same position on the value chain are known as vertical alliances.
a.
True
b.
False
28. Centralized and formalized procedures allow for greater flexibility, an important factor for firms using a cost
leadership strategy.
a.
True
b.
False
29. Arnold Schwartz, CEO and founder of Schwartz Engineering, has repeatedly rebuffed efforts by other firms to draw
Schwartz Engineering into strategic alliances. Schwartz Engineering has built its highly successful business around
proprietary processes invented by Mr. Schwartz in the 1980s. Mr. Schwartz is concerned that his firm will be required to
share the sources of its competitive advantage with alliance partners. This is a reasonable fear.
a.
True
b.
False
30. Organizational structures must be both stable and flexible.
a.
True
b.
False
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31. Over time, large and complex organizations must customize their structure to fit their unique strategic needs.
a.
True
b.
False
32. RexMacDonald, Inc., uses a differentiation strategy that relies on cooperation, communication, and sharing of ideas
among employees. In order to foster this behavior, RexMacDonald should emphasize strategic controls over financial
controls.
a.
True
b.
False
33. Firms using the differentiation strategy need to respond quickly to environmental opportunities and threats. The
structural features that are best for these requirements are centralization, specialization, and many rules and procedures.
a.
True
b.
False
34. A centralized structure does not provide information from local stores that would be useful in changing its technology
quickly. This example illustrates the effect of structure on strategy.
a.
True
b.
False
35. Strategy has an important influence on structure, although once in place, structures influence strategy.
a.
True
b.
False
36. Research has consistently shown that there is one best way to structure all organizations, regardless of competitive
strategy.
a.
True
b.
False
37. To properly execute strategic controls in firms using related diversification, the executives must have a deep
understanding of each unit’s business-level strategy.
a.
True
b.
False
38. In the hybrid form of the combination structure, some divisions are oriented toward products while others are oriented
toward market areas.
a.
True
b.
False
39. The three multidivisional structures that are used to implement a diversification strategy are the competitive form, the
strategic business unit form, and the integrated form.
a.
True
b.
False
40. Firms switch from a functional structure to a multidivisional structure because greater levels of environmental
complexity and uncertainty make it necessary for the firm to develop cooperative relationships with its stakeholders.
a.
True
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b.
False
41. The competitive form of the M-form structure is characterized by complete independence among the form’s divisions.
Unlike the divisions included in the cooperative structure, divisions that are part of the competitive structure do not share
common strengths.
a.
True
b.
False
42. Distributed strategic networks are the organizational structure used to manage international cooperative strategies.
a.
True
b.
False
43. If firms band together in a large number of vertical complementary strategic alliances, there is a danger that the
government will suspect them of illegal collusive activities.
a.
True
b.
False
44. The marketing and R&D functions are emphasized in the differentiation strategy’s functional structure.
a.
True
b.
False
45. Specialization refers to the extent to which authority for decision making is retained at higher managerial levels.
a.
True
b.
False
46. A strategic network can be characterized as a loose federation of partners revolving around a strategic center firm.
a.
True
b.
False
47. The integrated cost leadership/differentiation strategy needs structural features that are partially centralized and
partially decentralized, jobs that are semi-specialized, and rules and procedures that call for some formal and some
informal job behavior.
a.
True
b.
False
48. Companies and business units of large diversified firms using the cost leadership strategy should use strategic
controls.
a.
True
b.
False
49. Strategy has an important influence on structure, once a particular structure is in place, that structure influences
strategy.
a.
True
b.
False
Indicate the answer choice that best completes the statement or answers the question.
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50. The CEO of Transector, Inc., set a 6.5 percent rate-of-return target for all divisions for the past year. Now, at the end
of the year, three of Transector’s seven divisions have not met this rate-of-return goal. The division managers of these
three under-performing divisions have all secretly contacted executive-placement firms to investigate openings at other
firms, because they know their future at Transector is in jeopardy as financial performance is all-important at Transector.
Transector probably uses the ______ structure.
a.
competitive form of the multidivisional
b.
SBU form of the multidivisional
c.
worldwide geographic area
d.
distributed strategic network
51. Some experts consider the ______ structure to be one of the 20th century’s most significant organizational innovations
because of its value to diversified firms.
a.
network
b.
cooperative
c.
multidivisional
d.
functional
52. The noted business historian Alfred Chandler viewed the multidivisional structure as an innovative response to:
a.
an emerging professional management philosophy.
b.
the increasing demand by consumers for both high quality and low prices.
c.
coordination and control problems.
d.
a shift toward the global economy.
53. Successful implementation of the differentiation strategy requires a structure that:
a.
has specialized jobs.
b.
decentralizes decision making.
c.
focuses on the finance function.
d.
is dominated by the operations function.
54. In the competitive form of the multidivisional structure, the focus of headquarters is on all of the following EXCEPT:
a.
integration.
b.
performance appraisal.
c.
resource allocation.
d.
long-range planning.
55. Which of the following is NOT associated with an organizational structure that supports a cost leadership strategy?
a.
Centralization
b.
Specialization
c.
Formalization
d.
Integration
56. Successfully implementing a cost leadership strategy requires:
a.
freedom from constraining rules.
b.
centralization of authority.
c.
communication between functional silos.
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d.
sharing of competencies among divisions.
57. ______ controls are objective criteria that allow corporate managers to evaluate the returns earned by individual
business units.
a.
Strategic
b.
Managerial
c.
Financial
d.
Environmental
58. Firms such as Textron Inc. that frequently acquire and divest other firms are most likely to use the ______ structure.
a.
matrix
b.
competitive multidivisional
c.
hybrid combination
d.
horizontal complementary strategic alliance
59. A firm pursuing an unrelated diversification strategy will utilize a ______ structure.
a.
network
b.
cooperative form multidivisional
c.
competitive form multidivisional
d.
functional
60. The multidivisional structure was initially designed to produce three major benefits over the functional form. Which of
the following is NOT one of the three benefits?
a.
Aligning the corporate structure with the demands of global expansion
b.
More accurate monitoring of the performance of each business
c.
Dacilitating comparison between divisions
d.
Stimulating managers of poorly performing divisions to look for ways of improving performance
61. One of the primary disadvantages of the global strategy and worldwide product divisional structure is that:
a.
it is difficult to achieve economies of scale.
b.
the firm must develop centers to offer after-sales service to customers.
c.
it is difficult to respond effectively to local market needs and preferences.
d.
achieving economies of scale with this strategy/structure combination is nearly impossible.
62. The heavy use of integrative mechanisms in the ______ multidivisional organizational structure is intended to achieve
_______.
a.
cooperative; economies of scope
b.
competitive; cost efficiencies
c.
functional; sensitivity to cultural diversity
d.
SBU; quick response to local customer needs
63. In the ______ structure hierarchy, the headquarters relies on strategic controls to set rate-of-return targets and financial
controls to monitor divisional performance relative to those targets.
a.
functional
b.
cooperative
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c.
competitive
d.
SBU
64. Strategic controls allow corporate-level managers to:
a.
evaluate business-level performance on objective criteria.
b.
concentrate on day-to-day corporate operations.
c.
assess performance of employees and managers in each business unit.
d.
examine the fit between what the firm might do and what it can do.
65. Galatea Foods was founded in Greece by Galatea Chronos in 1978, and the company spread rapidly through Western
Europe. Ms. Chronos retains the office of CEO. The Spanish division is headed by her oldest son. The North European
division is headed by her only daughter, and the French-Italian division is headed by Ms. Chronos’ brother. This company
probably uses the ______ strategy.
a.
network
b.
multi-domestic
c.
global
d.
transnational
66. Which of the following is TRUE?
a.
Organizations tend to change structure too frequently, which erodes their competitive advantage.
b.
Large organizations can retain a simple structure as long as they have a focus strategy.
c.
Flexibility in structure is more important than stability.
d.
Strategy has a more important influence on structure than structure has on strategy.
67. Toyota heavily uses a strategic network of vertical relationships. Toyota enables engineers in supplier firms to
communicate easily with companies with which Toyota has contracts for services. This results in the suppliers and Toyota
(the strategic center firm) being more:
a.
interdependent.
b.
competitive with one another.
c.
creative.
d.
complementary.
68. ______ is the degree to which rules and procedures govern work.
a.
Formalization
b.
Centralization
c.
Specialization
d.
Unification
69. The primary disadvantage of the multi-domestic strategy and worldwide geographic area structure relates to limited:
a.
centralization.
b.
coordination across divisions.
c.
ability to meet local market needs.
d.
potential for global efficiency.
70. In an SBU structure, ______ is/are evaluated using strategic controls, whereas ______ is/are evaluated using financial
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controls.
a.
each SBU; divisions within the SBUs
b.
divisions within the SBUs; each SBU
c.
managers of the SBUs; headquarters staff
d.
headquarters staff; managers of the SBUs
71. Which of the following multidivisional structures is CORRECTLY paired with the appropriate corporate-level
strategy?
a.
Competitive form with related-constrained strategy
b.
Cooperative form with unrelated strategy
c.
SBU form with related-linked strategy
d.
Competitive form with related-linked strategy
72. Which of the following is a TRUE statement about implementing corporate-level strategies and effective
organizational structures?
a.
Firms pursuing a related linked strategy should implement a competitive structure with a competitive culture
and centralized strategic-planning activities.
b.
Firms pursuing an unrelated diversification strategy should use an SBU structure with a small corporate staff,
emphasize the R&D function, and integrate divisions to achieve synergies.
c.
Firms pursuing a related linked strategy should use an SBU structure, emphasize interdependence among
divisions, and manage the strategic planning function from the central office.
d.
Firms pursuing a related constrained strategy should implement a cooperative structure, use integrative devices
to link divisions, centralize the R&D function, and emphasize sharing.
73. Alfred Chandler found that firms grow in a predictable pattern and that the firm‘s growth patterns determine its
structural form. Which form corresponds to the FINAL stage in Chandler’s theory?
a.
Functional
b.
Simple
c.
Vertically integrated
d.
Multidivisional
74. Implementing the multi-domestic strategy requires decentralization to:
a.
facilitate the tailoring of products to the demand in local markets.
b.
develop economies of scale.
c.
achieve economies of scope.
d.
reduce bureaucracy and speed up decision making.
75. Firms seeking to compete on the basis of cost leadership particularly need support from the ______ and ______
functions.
a.
finance; accounting
b.
manufacturing; process R&D
c.
product R&D; marketing
d.
management information; finance
76. The need for the organization to combine local responsiveness and efficiency is most critical in a ______ strategy.